Gold as a Commodity and the Issue of Smuggling in India
Gold is a peculiar metal with limited industrial use. In its pure 24-carat form, it is too malleable for jewelry making and must be alloyed with other metals, reducing its caratage to 22 or 18 carats. Despite its limited practical applications, gold's allure persists, with over 700 tonnes illicitly imported into India annually.
Smuggling and Economic Impact
- Directorate of Revenue Intelligence (DRI) and enforcement agencies seize approximately three tonnes of smuggled gold each year.
- Recent notable seizures include 14.2 kg at Bengaluru airport and 21.28 kg at Mumbai airport.
- Smuggling leads to revenue loss, job loss, and the generation of black money, which can be channeled into other illegal activities.
Current Gold Reserves and Government Schemes
- India has 23,000-24,000 tonnes of unused gold held by banks, households, and religious institutions according to a 2018 NITI Aayog report.
- Government initiatives like the Gold Monetisation Scheme (GMS), Sovereign Gold Bond (SGB) scheme, and gold ETFs have had limited success in mobilizing this gold.
Policy Considerations
The budget for 2024-25 reduced the duty on gold imports to 6% for passengers returning after over six months, with a limit of 1 kg; otherwise, the duty is 36%. The price difference between Dubai and India, combined with these duties, makes smuggling profitable.
Potential Solutions
- Consider further reducing the duty or making gold imports duty-free to eliminate the price arbitrage that fuels smuggling.
- Weigh the reduction against revenue loss, impact on forex reserves, and damage caused by smuggling.
- Align basic customs duty with the 3% GST rate to diminish smuggling incentives.
Addressing gold smuggling requires a combination of policy review, enforcement vigilance, and a cultural shift in how gold is perceived. The notion that personal or national value is tied to gold reserves is outdated, and public figures endorsing gold could help change this perception.